Sunk Cost

The sunk cost fallacy is one which many people succumb to its grasp. A sunk cost is the idea that you have already invested an amount into something and then see it through the end regardless of what happens, because you have made the initial investment. It is typically an economic and investment term but can be applied to nearly all aspects of our lives with relationships and our usage of time being the two main recipients. A counter to falling into the pit of a sunk cost is the ability to pivot and switch our approach.

Understanding when we are approaching sunk-cost territory and when to pivot is key. If Joe Burrow did not take a chance on himself and transfer from Ohio State to LSU, he would have never won the Heisman Trophy, National Championship, or been drafted 1st overall. Had he stayed at Ohio State, he would have committed to the sunk cost of his time already spent at the university. This is a real-life example where a pivot turned out to work as a best-case scenario.

In reframing to more general real-life scenarios, sunk costs exist everywhere. In investing, instead of holding a stock as it plummets to all-time lows, we can choose to pivot and invest in a different one. We may lose money in the short term but we have a much higher upside to find positive return on our investments than if we simply held. With relationships, just because you have spent multiple years with someone does not mean they have to be the person you spend the rest of your life with. Sometimes the spark diminishes and the only thing keeping the relationship alive is the time already spent together. A mediocre relationship is not worth the rest of your life, so you should accept the sunk cost of time and move on to avoid wasting more of your time, you will be happier in the long run.

Perhaps the most tangible example of sunk costs is with our time. There are only 24 hours in each day and if we are repeatedly choosing to give our time to something because we have “been working for a while,” but not seeing any sort of improvement, results, or benefits, we should consider a switch of pace. Sunk costs exist everywhere, we need to find them and reevaluate what is worth it.

Life decisions will need to be made whether we decide to continue investing our time, love, money, and efforts, or if we decide we have already given enough and things simply are not working. It is okay to accept things are not working and to move on to different avenues. Life is too short to make singular decisions that we hold onto until they either succeed or fail. We must recognize when we need to pivot so we can avoid the misfortune of further sunk costs.